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Home » Baltic, Focus

The EIF and the Baltic Innovation Fund

Submitted by on 28 Mar 2013 – 12:50

By Richard Pelly, Chief Executive, EIF Baltic Innovation Fund

The European Investment Fund (EIF) is Europe’s leading developer of risk financing for entrepreneurship and innovation. Its central mission is to support Europe’s small and medium-sized businesses (SMEs) by helping them to access finance.  The EIF designs and develops venture capital and guarantees instruments which specifically target this market segment and plays an important role in meeting the EU’s innovation, research and development, entrepreneurship, growth, and employment objectives.

As part of this process and role, the EIF has considerably stepped up its commitments in the past five years in the Baltic Region. Examples of equity operations include investments into BaltCap (Estonia, Latvia, Lithuania), into Inventure (Finland), into Creandum (Sweden) and into the Capricorn Cleantech Fund which investment strategy is focused on Denmark/Norway, just to name a few. Among the companies that have been backed by the funds EIF has invested in are dynamic start-ups such as Spotify AB which has in the past four years become the global leader offering music stream services to more than 10 million users in 13 countries worldwide.

In September 2012, the EIF designed and launched the Baltic Innovation Fund (BIF), a Fund-of-Funds initiative in close co-operation with the Governments of Lithuania, Latvia and Estonia to boost equity investments made into Baltic SMEs with high growth potential.

BIF represents a EUR 40 million investment by EIF with each Baltic Government committing EUR 20 million through their respective national agencies (INVEGA in Lithuania, KredEx in Estonia and LGA in Latvia).

BIF will now begin the process of investing EUR 100 million into private equity and venture capital funds focusing on the Baltic States over the next four years through a ‘fund of funds’ process which is specifically designed to attract additional private finance and to implement the best market standards for equity investing in businesses. This trans-national process provides a real opportunity to further develop the Baltic Private Equity and Venture Capital market and to stimulate employment and competitiveness in the region.

This initiative aims to create equity financing in more than 50 growth-focused enterprises, that will often either already be pan-Baltic or will use the investment capital to implement growth plans to become pan-Baltic.

The investment process for the Baltic Innovation Fund has now begun with EIF starting to process transactions with selected Fund Managers. Each Fund Manager will be expected to attract an additional and equivalent amount of private finance from pension funds and private investors which will double the amount of investment capital within the programme. Across a 4 year investment period, between 3 to 6 Fund Managers will receive investment commitments which will then be invested into innovative high-growth SMEs.

The Baltic Innovation Fund is the result of strong co-operation between the three Baltic States and the EIF that is unique in its nature across Europe and places the region in a position to benefit from greater levels of private investment than before. Furthermore, the three governments are taking a lead in this process by investing into the Baltic Innovation Fund through their respective national agencies and utilising the revolved Structural Funds from previously successful SME support schemes to do so. This unique trans-national process provides a real opportunity to further develop the Baltic Private Equity and Venture Capital market.

In implementing the Baltic Innovation Fund, EIF has partnered with these National agencies:

KredEx is an Estonian financial institution helping Estonian enterprises to grow business and expand more safely into foreign markets, offering mezzanine loans, credit lines, credit insurance and guarantees with state guarantee.

Latvian Guarantee Agency (LGA) is a Latvian specialized development finance institution active in all segments of the financial market, investing in VC funds, providing mezzanine loans and loan, leasing and export guarantees.

INVEGA promotes the development of small and medium-sized enterprises in Lithuania facilitating their access to the sources of financing. The key objectives of activities of INVEGA are to provide financial services – the guarantees, to implement and administer financial and other support measures for small and medium businesses.

BIF will build a balanced portfolio of venture capital and private equity investments with an investment focus on the Baltic States. The balance will cover the aspects of instrument focus, vintage and an appropriately diversified number of underlying transactions.

EIF, as manager of the BIF, considers the following investment opportunities:

  • Investments into venture capital and private equity funds (including mezzanine funds) with proven experience and insight into the Baltic market;
  • Co-investments alongside business angels, family offices and institutional investors into early to growth phase SMEs. BIF co-invests with selected investors which are either domiciled in the Baltic States, provide for a relationship with the Baltic ecosystem or can consider investments into the Baltic States.

Both funds and direct co-investments need to satisfy a strict set of investment criteria applied under EIF’s normal investment process. In terms of direct co-investments, EIF looks for qualified and credible partners, with extensive experience in the region and whose reputation is at stake when undertaking any single investment.

As part of its wider role, the EIF operates across the wider Baltic Sea Region and regards this area as being of key importance to its long term strategy: In 2012, it had leveraged more than EUR 700m of resources to this region, 87% of which were equity, 13% of which were guarantees. Over the last five years, the EIF has managed to mobilise EUR 6.4bn in this region to benefit SMEs.